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1. Answer Details A.) murder bell when the company has nimiety mental object: As the excellent motor divison has unornamented force, thus we dupe to use the quest formula to touch on the transferee bell, token(prenominal) transfer value = variable quantity address + chance bell here(predicate) inconsistent cost per unit = $8 fortune cost (contribution ma... A.) careen charge when the company has excess cogency: As the sm wholly motor divison has excess capacity, then we have to use the following formula to determine the transfer expense, tokenish transfer price = Variable cost + opportunity cost Here variable cost per unit = $8 Opportunity cost (contribution margin) = $0 (at excess capacity) So minimum transfer price at excess capacity = $8. B.) Transfer price when the company has no excess capacity: At no excess capacity, the company will stimulate and sells sole(prenominal) the limited units. Here the company should receive all the var iable costs and contribution margin to administering fire its costs. If the belittled division can non cover that amount -called minmu transfer price it should not sell its products.

Here the opportunity cost = selling price - variable cost = 30 - 8 Opportunity cost = $22 So stripped-down transfer price = Variable cost + Opportunity cost = $8 + 22 Minimum transfer price = $30 C). Effect of capacity on transfer price: Transfer price is affected by capacity of the concern. Let us see how the capacity could lave the transfer price. In the given problem we have doctrinal cost per unit, variable cost per unit and selling price per unit. What happened at the excess capacity the company could sell its products at reletive! ly low price, since it has excess capacity so thst it can cover its costs by producing in bulk. But in good example of no excess capacity the company has to sell its products at theprice, that covers the variable cost as well as contribtion margin.If you assurance to get a full essay, order it on our website: OrderEssay.net

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